Question

The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. The selling price for the product will be $45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows: Procurement Cost ($) Probability Labor Cost ($) Probability Transportation Cost ($) Probability 10 0.25 20 0.10 3 0.75 11 0.45 22 0.25 5 0.25 12 0.30 24 0.35 25 0.30 1. Compute profit per unit for base-case (most likely), worst-case, and best-case scenarios. Base Case using most likely costs Profit = Worst Case Profit = Best Case Profit = 2. Construct a simulation model to estimate the mean profit per unit. The average profit from the simulation model should be approximately: 3. Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios? [write your paragraph here] 4. Management believes that the project may not be sustainable if the profit per unit is less than $5. Use simulation to estimate the probability that the profit per unit will be less than $5. [write your paragraph here]

          The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. The selling price for the product will be $45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows:

Procurement Cost ($) Probability Labor Cost ($) Probability Transportation Cost ($) Probability
10 0.25 20 0.10 3 0.75
11 0.45 22 0.25 5 0.25
12 0.30 24 0.35
25 0.30

1. Compute profit per unit for base-case (most likely), worst-case, and best-case scenarios.
Base Case using most likely costs
Profit =
Worst Case
Profit =
Best Case
Profit =

2. Construct a simulation model to estimate the mean profit per unit.
The average profit from the simulation model should be approximately:

3. Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios?
[write your paragraph here]

4. Management believes that the project may not be sustainable if the profit per unit is less than $5. Use simulation to estimate the probability that the profit per unit will be less than $5.
[write your paragraph here]

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The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. The selling price for the product will be 45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows:

Procurement Cost () Probability Labor Cost () Probability Transportation Cost () Probability
10 0.25 20 0.10 3 0.75
11 0.45 22 0.25 5 0.25
12 0.30 24 0.35
25 0.30

1. Compute profit per unit for base-case (most likely), worst-case, and best-case scenarios.
Base Case using most likely costs
Profit =
Worst Case
Profit =
Best Case
Profit =

2. Construct a simulation model to estimate the mean profit per unit.
The average profit from the simulation model should be approximately:

3. Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios?
[write your paragraph here]

4. Management believes that the project may not be sustainable if the profit per unit is less than 5. Use simulation to estimate the probability that the profit per unit will be less than5.
[write your paragraph here]

Added by Bego-A R.

Elementary Statistics a Step by Step Approach

Allan G. Bluman 9th Edition

Instant Answer

Solved by Expert Lucas Finney

01/09/2023

Step 1

- **Base Case (Most Likely Costs)**: - Selling Price = $45 - Purchase Cost = $11 (most likely) - Labor Cost = $24 (most likely) - Transportation Cost = $0.25 (most likely) - **Profit** = Selling Price - (Purchase Cost + Labor Cost + Transportation Show more…

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The management of Brinkley Corporation is interested in using simulation to estimate the profit per unit for a new product. The selling price for the product will be $45 per unit. Probability distributions for the purchase cost, the labor cost, and the transportation cost are estimated as follows: Procurement Cost ($) Probability Labor Cost ($) Probability Transportation Cost ($) Probability 10 0.25 20 0.10 3 0.75 11 0.45 22 0.25 5 0.25 12 0.30 24 0.35 25 0.30 1. Compute profit per unit for base-case (most likely), worst-case, and best-case scenarios. Base Case using most likely costs Profit = Worst Case Profit = Best Case Profit = 2. Construct a simulation model to estimate the mean profit per unit. The average profit from the simulation model should be approximately: 3. Why is the simulation approach to risk analysis preferable to generating a variety of what-if scenarios? [write your paragraph here] 4. Management believes that the project may not be sustainable if the profit per unit is less than $5. Use simulation to estimate the probability that the profit per unit will be less than $5. [write your paragraph here]

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Transcript

00:01 So for this problem, the first thing that we are asked to do is to compute the profit per unit for each one of the different possible cases.

00:09 Best case, or a base case, worst case, and best case.

00:14 So we'd have that the base case profit would be found simply by taking, as suggested, the most likely costs.

00:23 So we'd have that the procurement cost, the most likely one, would be 11.

00:28 The most likely labor cost is 24 the most likely transportation cost is three and let's see here we're told that the selling price of the product is $45 per unit so actually let's see here the base profit is going to be 45 minus all of those minus 11 plus 24 plus 3 so one second here i'm just going to calculate that out 45 minus 11 minus 24 minus 3 so we have a base case profit of 7 the worst case that would be simply going with the most expensive different possibilities so we'd have that that is going to be equal to let's see here so we know we're still selling for 45 dollars but the worst possible procurement cost is 12 worst possible labor cost is 25 and worst possible possible transport is 5 so we have that the worst case scenario is a profit of $3 per unit, and the best case scenario is going to be given by, let's see here, 45 minus the lowest procurement, which is 10, minus the lowest labor, which is 20, minus the lowest transportation, which is 3.

01:52 So that would be a best case profit of 12.

01:56 Then moving on to part two, constructing the simulation model.

02:02 I'll be using excel for your doing the random number generation here.

02:07 So you'd go to data, data analysis.

02:11 We want random number generation.

02:14 The number of variables, so the way that i'll do this is i'll generate, let's say, a thousand data points for each one of the different steps, so to speak.

02:25 So we'd be going with the discrete distribution, and we'd select the different possible values, as well as their corresponding probabilities.

02:33 I'll get the output in a new sheet.

02:36 So there we have our procurement costs.

02:39 Then we want to generate as a new column.

02:43 The labor costs...

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